It’s not rare for anyone to, every once in a while, accumulate debts due to various reasons beyond our control. No matter how much effort we put, debt seems to keep mounting with no sign of relief in sight. Getting out of the debt requires serious planning and a rigorous effort. In this article, we highlight a few ways to put your debts under control and get on top of your finances – something particularly important now that the COVID-19 crisis is adding an extra layer of stress on thousands of Australian’s financial situation.
Rolling multiple loans into a single, consolidated loan.
Let’s say you overspent on a vacation, purchases for the house or a kitchen renovation, or simply had your income drop for any reason. Let’s say you are now struggling to meet commitments. Living month to month. Wondering how you’re going to pay for your next bill or loan repayment. Feeling concerned, and with no idea what the next best move is. In the past weeks, since the COVID-19 crisis started impacting various industries and leaving thousands unemployed, the situations above are more relevant and common than most would like to admit. Read on to see some steps you can take to relieve your financial burden and make life easier.
Talk to your credit providers
If you are suffering a serious financial strain or hardship, there are ways to deal with it, starting with a call to your lender. Explain your circumstances and ask them to stretch your repayment period or for a reduction in your interest rate to lower your liability. Most lenders will look at your situation and give you some form of relief.
Consider your other options first.
With too many different bills arriving in a single month, wondering which one to pay first and which one to hold sounds much like a game of Russian roulette. Consider making a budget to pay for loans or cards with the highest interest rate and monthly repayment first. Call your lender to give you relief by way of lower monthly payments over a longer period on these big bills. That way you can stretch your funds to eventually pay all bills without spreading yourself too thin.
Consider a credit card balance transfer
Go for a credit card with 0 interest on balance transfer and with the longest repayment period to transfer your current debts to. In this way, whatever repayment you are making will all go to reduce your total loan amount, and you will not be paying any interest. Make sure you do not use this card to make any new purchases or cover any new expenses. All 0 interest balance transfer cards have a high rate of interest for new use. Be VERY aware of this debt trap.
Consider applying for a personal loan
Consider applying for a personal loan equal to the total debt you owe, so you can make a single payment every month instead of paying for multiple different loans and cards. Pay all your outstanding debts and close them. One repayment on a negotiated loan with a good rate will make life easier and assist in handling your debt more easily. Negotiated repayment on personal loans should be lower than the repayment of all your current debts.
Be AWARE not to keep the cards and loans you paid off from your personal loan active, or else you will fall into a deeper debt trap.
Refinance & Consolidate;
The last step would be to consolidate all your debts into your home loan, provided you have enough equity in your house. Refinance with a cash-out amount equal to your outstanding debt, pay off all the debts and close the accounts. Do not be tempted to apply for more than what you need to pay off your debts. You will save by paying a much lower interest on your home loan than any of the cards and personal loans, provided you follow caution steps below:
- Do not borrow more than you need or else you will end up increasing your overall debt above your current debt.
- Make sure to keep paying more on the amount borrowed for the short-term debt. Paying the minimum amount will make you pay a lot more in interest as a short-term debt consolidated into your home loan is paid over a longer-term, making it more expensive
Get professional advice
Call us and we will guide you on how to get out of the debt trap.
Disclaimers: Terms and conditions apply. Fees and charges may apply. Subject to lending criteria of the lender. This information has been prepared without taking into account your circumstances and needs, and may not be suitable for your circumstances.
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